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The subprime residential lending crash has dealt the market a body blow. But its aftershocks could hit lenders with a second real estate-related punch, if the highly leveraged commercial property market succumbs to the contagion.

Banks have significantly tightened their lending standards this year, and commercial real estate has felt the effects particularly quickly. Commercial mortgage-backed security issues, which finance about half of deals and were a key driver of the recent market boom, dropped 84 per cent in October from a record high of $38.5bn in March. At one point, some loans actually exceeded property values. Now, typical loan-to-value ratios have retreated to about 70 per cent – when deals are completed at all.

Lenders have, appropriately, returned to their senses. But some may have changed from partygoer to policeman too late. Tough new standards will not reduce risk on ambitious past financings. US banks could see $11bn to $78bn of commercial real estate losses if the lending crisis spreads, according to Goldman Sachs. Each lender’s risk would depend on its mix of whole loans and CMBS, as well as newer, riskier commercial real estate collateralised debt obligations and even riskier B-note or mezzanine debt. Those more speculative lending markets were bursting at the seams with demand this year. But they have never been tested by a serious downturn.

The commercial property sector is not likely to suffer the huge falls experienced by the worst-hit residential markets – prices are more likely to correct by, say, 10 per cent to 15 per cent. Supply is near its tightest point in decades. And though total US real estate debt has skyrocketed to $14,000bn, commercial leverage has expanded far more slowly than residential debt.

But certain factors facing commercial tenants compound the threat. Store, hotel and factory owners are holding their breath as the economy struggles under the weight of the housing crisis. Even the hot Manhattan office market has seen almost 10,000 Wall Street lay-offs this year. Given banks’ astronomical losses in subprime lending, a modest slide in commercial property values may be the best they can hope for.